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Powering up

Asia's technology landscape is undergoing a momentous shift which has significant implications for investors and consumers alike

"WINNER TAKES ALL" is the new mantra for Asia's well-funded technology companies as they spend their way to acquire market share.

Their acquisition spree has benefitted investors - technology sector stocks rose an impressive 60 per cent in 2017, led by China where they almost doubled in value. This has made Asia's technology sector a global force to reckon with. Two of the largest companies globally today are in the technology sector and based in Asia; and almost half of all technology Unicorns - privately held companies with a value in excess of US$1billion - are also based in Asia.

Examples of the Asian technology land grab abound in various segments, including in cloud computing, on-demand taxi hailing and instant messaging services. Even sovereign wealth funds around the region have been pouring money into Asia's technology Unicorns to finance this land grab. In some cases, private funds are backing two or more companies which are competing head-to-head in the same services and in the same country to ensure they end up with the winner, no matter the cost.

Asian consumers are the other major winners in this land grab as the new technology providers help the region leapfrog in terms of infrastructure and services. This trend was first observed in the provision of telecoms services. Consumers in developing countries including India, Indonesia, Philippines and China who were unable to access telephone landlines were able to leapfrog the technology frontier, gaining access to a voice communication via mobile phones. This resulted in another leap-frog moment: the high relative cost of buying personal computers to go online was surmounted when consumers were able to use smartphones to access the Internet.

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We are now experiencing yet another leapfrog moment where consumers across the region eschew the traditional aspiration to own a car for the convenience of on-demand transport. Similar trends are happening in the music and entertainment sectors, where ownership of gadgets to listen to music, watch movies and play video games is giving way to online streaming.

For consumers in the developing economies in South-east Asia, the ability to gain easy access to electronic micro-payments services, which need not be linked to a bank account, and use peer-to-peer money transfer services are other examples of the leapfrog trend.

Similar to China, Singapore has seen some success in its PayNow peer-to-peer payments and funds transfer service, which will soon expand to using QR codes for retailers. Other companies have also introduced cashless payment systems which can be used to pay for on-demand transport as well as with retailers via a QR code.

No discussion about money transfer is complete without mentioning blockchain and its eponymous cybercurrency, Bitcoin. We view Bitcoin as a speculative asset, rather than money, which is traditionally defined as a medium of exchange, store of value and legal tender.

Nevertheless, the blockchain technology that underpins Bitcoin and its competing cybercurrencies has the potential to significantly disrupt established payments systems such as the Swift system used by banks worldwide to make transfers to each other. Expensive consumer focused, cross-border money transfer services offered by banks and other financial institutions are already reacting to the threat posed by blockchain technology, with the cost of these transfers falling sharply and, in some cases, offered for free by banks.

We believe Asia's technology race is still at a nascent stage, given the significant demand for infrastructure across the region. This offers investors unprecedented opportunity to share in the wealth creation, as the "winner takes all" trend drives the land grab among the technology sector and helps consumers leapfrog the technology barriers. Although technology Unicorns - those privately held companies with a value in excess of US$1 billion - are not accessible to ordinary investors, we are likely to see in an increase in the number of these companies planning to list their shares on regional exchanges, including those in South-east Asia, over the coming months. W

Clive McDonnell is Head of Equity Strategy at Standard Chartered Private Bank.

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